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When It Comes to Higher Wages, the Wall Street Journal Doesn’t Believe in Capitalism

That’s the implication of this piece warning that a tight labor might force companies to raise wages and this could be hard on many companies’ profits. We know that profit shares are near record highs, especially after the Trump tax cut substantially reduced companies’ tax liabilities.

This means that the vast majority of companies should be able to easily absorb higher wages without passing the cost on in prices. Undoubtedly some companies are not well-situated because they are less efficient or face weak demand for their products. These companies may go out of business.

This is what happens in capitalism, it is how productivity increases and living standards improve though time. Inefficient companies shrink and go out of business, while more dynamic companies grow and prosper.

The piece also bizarrely highlights the 2.7 percent increase in workers’ pay over the last year as though it is a big bonanza. This is just equal to the rate of inflation over this period, so in effect the WSJ is upset that in an economy with 4.0 percent unemployment workers have enough bargaining power to keep even with inflation.

This column originally appeared on Beat the Press.

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Dean Baker is the senior economist at the Center for Economic and Policy Research in Washington, DC. 

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